As Nova Scotia disability insurance lawyers, this is a question we hear very frequently. The short answer of whether CPP benefits are deducted from LTD benefits is: “yes, probably”. The vast majority of the time, your LTD insurer will reduce your monthly payment by the amount you receive in CPP (sometimes even by the amount you may receive in CPP). But not always; every long term disability policy is different and your rights under the insurance contract may differ depending on the wording. To get an opinion specific to your case, it’s recommended that you consult with an experienced LTD lawyer.
Long term disability insurance is designed to provide income replacement if you become disabled from work. This type of insurance in Canada usually comes in two forms:
(1) LTD insurance paid by private insurance companies, and
(2) CPP disability benefits paid by the Canadian Government’s Canada Pension Plan.
For Private Disability Insurance (LTD): You and/or your employer pay monthly premiums to a private insurance company. You enter into a private contract for that insurance company. In exchange for those regular payments, that insurance company promises to pay you a monthly disability benefit if you become unable to perform the duties of your occupation (or another job reasonably suited for you).
For Public Disability Insurance (CPP): You and your employer make monthly contributions to the Government’s Canada Pension Plan. The CPP program requires all employed Canadians to contribute a set portion of their earnings to this nationally administered plan. In addition to providing all Canadians with a regular monthly payment after they reach retirement age, the CPP also provides disability pensions to eligible workers who become disabled in a severe and prolonged fashion.
In most cases, private LTD insurers will structure their insurance contracts in a way that allow them to deduct any benefits the disabled worker receives from CPP. For example, if you are entitled to receive a private LTD benefit of $3000 per month, and CPP allows the worker to receive a monthly benefit of $1200 per month, then the private insurer will only pay the amount required to keep the monthly benefit at $3000 (so $1800 in this example).
This reality is often upsetting to disabled workers, because even at their fullest, LTD and CPP usually do not make up for 100% of the lost income. Even more surprising and distressing is when workers are approved for CPP after LTD benefits have been paid for a while. That will often put the workers into a repayment situation wherein they may be asked to pay money back to their LTD insurer. You need to be aware of possible repayment obligations if you are receiving LTD benefits and get a lump sum retroactive payment from CPP. Don’t spend all of that lump sum payment because there’s a good chance your LTD insurer will want (and be entitled to) some of it.
Because of the set-off provisions contained in most LTD policies, insurance companies will often demand that the disabled worker they’re paying apply for CPP. They are typically allowed to do this, within reason. Some private LTD insurers will try to deduct the estimated amount of CPP benefits from the LTD benefits paid, whether or not the insured works actually received CPP. This is especially the case if the disabled worker refuses to apply for CPP against the request of the private insurance company. Their ability to legally do this depends is fact specific and largely on the wording of the insurance contract.
Every LTD policy is different. Every person and disability is unique as well. That’s what makes these sort of cases so challenging and frustrating for the disabled worker. As experienced insurance lawyers, we answer questions from Nova Scotia workers every day about their disability insurance rights. If you have questions or concerns about your rights under an LTD policy, contact us today for a free consultation.